Fear of losing startups may lead Ky. to offer tax credits

Ohio incentives already snagged OneMorePallet

Jan. 25, 2014

When Northern Kentucky leaders created UpTech, the business accelerator based at NKU, their greatest fear was that the program would successfully incubate startup companies – and then lose them to Ohio's more favorable tax climate. That has now come to pass: OneMorePallet has moved to Cincinnati, where it received a much-needed infusion of funds. Bill Cunningham, of OneMorePallet, stands beside his desk made of a pallet, in the company's new Montgomery office. The Enquirer/Amanda Rossmann

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When Northern Kentucky leaders created UpTech, a program to help startup technology companies grow, their greatest fear was that they would lose a promising company to Ohio, where a more favorable tax climate makes it easier for startups to get investors.

Two years later, that fear has become a reality.

OneMorePallet, a fast-growing logistics company from UpTech’s inaugural round, has moved its offices from Newport to Cincinnati, where it received a critical infusion of funding.

“I did everything I could to stay in Kentucky,” said founder and CEO Bill Cunningham. “I’d be glad to move back if I could create a $600,000 investment. But right now, it’s one foot in front of the other.”

The company uses technology to match businesses shipping small amounts of goods with trucking companies that have excess space.

In November, OneMorePallet received a $300,000 investment from Queen City Angels, the group of “angel investors” who support startups. The funding will help the company with marketing and growing its customer base. But it came with a catch – OneMorePallet had to be located in Ohio.

There were other factors in the move, including a deal on office space a mile and a half from Cunningham’s home in Montgomery.

To Northern Kentucky business leaders, it’s a blow to the region’s growing entrepreneurial ecosystem, and reinforces the need for state lawmakers to make Kentucky more competitive in this quickly-growing arena.

“We don’t have the tools here that are available across the river, and our worst fears came true: We don’t have the resources to build these companies, and they’re going across the river,” said Adam Caswell, vice president of public affairs for the Northern Kentucky Chamber of Commerce and an UpTech co-founder.

Business leaders don’t blame Cunningham for moving in order to help his company grow: “They did what they had to do,” Caswell said.

But it’s especially painful given how hard Northern Kentucky has worked to cultivate the logistics sector of the economy.

“There is no better reason why this company should be here, when you think of the efforts we’ve made in developing the logistics hub around CVG and our efforts to expand it,” he said. “This company should be out there (in Boone County) by DHL and Verst Logistics – this is right in our wheelhouse.”

For several years, the chamber has lobbied the General Assembly to enact an individual income tax credit for angel investors. Such a tax credit spurs investment by offsetting the risk for investors, since a high percentage of startups fail. Ohio has the tax credit, though it was so popular that the fund ran dry a year ago.

“I’m a big fan of the tax credit,” Cunningham said. “It worked in Ohio and spurred a lot of innovation, and I know if it were to happen in Kentucky, there would be a lot more activity there. And that has a multiplier effect: you get more startups, and it begets more startups that are successful.”

The tax credit has widespread support among the Northern Kentucky business community and even of Gov. Steve Beshear, who mentioned it in his State of the Commonwealth address last month. Legislation has been filed to allow the tax credit, and business leaders are hoping it will also be included in the tax reform package his administration will unveil soon.

Passage of the tax credit is considered critical to the region and the long-term success of UpTech, which has exceeded its founders’ expectations so far.

“UpTech really did accelerate my business, because it gave me the credibility to raise more funding in the early stages. And the connections I made through UpTech have been phenomenal,” Cunningham said. “I was able to get an advisory board member from the trucking industry, someone I met through Steve Stevens at the Chamber. It also gave us a lot of good publicity, and it gave us our first customers.”

During the past two years, UpTech has helped OneMorePallet and 15 other tech startups grow through a unique partnership with Northern Kentucky University’s College of Informatics. And the private sector has stepped up, too, investing about $2 million in the companies as well as in-kind advice and mentoring from more than 40 professional firms from both sides of the river.

“The private sector has answered every request we’ve made of them, from private investment to private resources. We now need the public sector and the state legislature to do their end of the deal,” Caswell said. “Now is the time to pass the angel investment tax credit to make sure our greatest export isn’t our brightest ideas and most promising startups.” ⬛